The UK stock market took a sharp dive following a warning from two US banks, triggering a global sell-off in shares. This event has raised concerns about potential issues within the banking sector, with two regional lenders, Western Alliance Bank and Zions Bank, reporting losses from bad or fraudulent loans. As a result, major UK banks like Barclays and Standard Chartered saw their share prices plummet by over 5%. The FTSE 100 index initially dropped by 1.5% before recovering some ground. Stock market indexes worldwide, including Germany's Dax and France's Cac 40, mirrored this decline. On Thursday, Zions Bank announced a $50 million write-off on two loans, while Western Alliance filed a lawsuit alleging fraud. Investment director Russ Mould of AJ Bell noted that these issues have investors on edge, questioning risk management and lending standards. Despite no evidence of problems with UK-listed banks, investors' knee-jerk reactions persist. European bank shares were also affected, with Deutsche Bank and Societe Generale experiencing significant drops. Asian markets opened lower on Friday, with Japan's Nikkei and Hong Kong's Hang Seng Index ending the day with substantial losses. However, shares of affected US banks showed signs of recovery, with Zions Bank shares up 2% after a 13% fall and Western Alliance Bancorp shares up 2% after an 11% drop. The White House National Economic Council director described the issues as 'messes' left by the Biden administration, asserting that US banks are well-prepared to handle the stress. Kevin Hassett expressed optimism, citing the banking sector's ample reserves. The recent failures of Tricolor and First Brands, car loan and parts companies, have raised questions about private credit market deals' quality. Jamie Dimon, CEO of JPMorgan Chase, warned that these failures could indicate more significant issues, comparing them to finding a cockroach in a house, suggesting there might be more problems lurking. Additionally, concerns about an AI investment bubble in the US stock market have emerged, with fears of overvalued shares. The market turbulence led to a record high gold price of $4,380 per ounce as investors sought safe havens. The VIX volatility index, a 'Fear Index' measure, reached its highest level since April, indicating heightened market anxiety.
